HKEX – a year in review

It was an eventful year for Hong Kong
Exchanges and Clearing, which ended
with some disappointing financial results. The TRADE Asia looks at how the
exchange operator evolved its business
throughout 2016.

contracts, up 14% from 2015 and various options, open
interest of several products and turnover in after hours
futures trading also rose to record highs.

HKEX rolled out several major initiatives through-out the year, some of which had very positive impactson trading activity. The closing auction session waslaunched in July and allows traders 10 extra minutesof trading at the closing price. A volatility controlmechanism – or circuit breaker – was launched inAugust 2016 across the securities market and wasestablished to prevent extreme price volatility occur-ring from trading incidents. The circuit breaker hasyet to be triggered. The success of the mechanism ledto HKEX rolling out the same device for derivativesCharles Li, the chief executive of Hong Kong Exchanges and Clearing (HKEX), wrote in hisfinal blog post of the year, “2016 has not been easyfor us…our volumes and revenues are both down”.The exchange operator reported a 17% decline inrevenues to $11.1 billion in 2016 from $13.4 billion theyear prior. Subdued activity and market conditionson cash markets led to the average daily turnoverplummeting 37% from $105.6 billion in 2015 to just$64.3 billion in 2016.

Chow Chung Kow, chairman of HKEX, explained
within the earnings report how 2016 was a year of
uncertainty and surprises due to the US presidential
election and the UK’s decision to leave the European
Union. “The global financial markets were volatile and
overshadowed by political and economic uncertainties,” he said. He added there were growing concerns
about Mainland China’s economy slowing down and
that interest rates would rise in response to US interest rate hikes.

Nevertheless, it was a busy year for the exchange
with the launch of the highly anticipated Shenzhen-Hong Kong Stock Connect in December. The
trading link connects the secondary equity markets
of Hong Kong, Shenzhen and Shanghai, creating
a combined equity market value of approximately
RMB 70 trillion.

Alongside this, HKEX saw record total futures
trading and across various other derivatives products
in 2016. Total futures turnover reached 84,100,129